A0595
Title: Factor dynamics, risk premia, and higher moments in multi-factor option pricing models
Authors: Jeroen Rombouts - ESSEC Business School (France) [presenting]
Abstract: A class of multifactor Heston stochastic volatility models are considered to describe return and option dynamics jointly. The model can generate a wide range of stochastic volatility patterns, and flexible third and fourth-order moment dynamics. The estimation algorithm consists of an adapted particle MCMC sampler that allows fitting the models with long return series and large option panels. In the application, we estimate stochastic volatility models with up to three factors, jumps, and show that this additional flexibility generates more realistic volatility dynamics and risk premia. Furthermore, option fit greatly improves.
